© Suzanne Scotchmer 09/14/2004 Contents May Be Used Pursuant to Creative Commons Attribution-NoDerivs-NonCommercial Common Deed 1.0Attribution-NoDerivs-NonCommercial Common Deed 1.0 The Problem of Cumulativeness Basic problem: It is hard to compensate an early innovator for his contributions to later innovators. In fact, the market punishes early innovators for teaching technologies to later innovators Can IP solve this problem? What is the problem with Strong protection to first innovator: everything infringes Weak protection to first innovator: nothing infringes Examples: laser, indigenous knowledge, light bulbs Basic and Applied Research Research Tools and Inventions Quality Ladders

© Suzanne Scotchmer 09/14/2004 Contents May Be Used Pursuant to Creative Commons Attribution-NoDerivs-NonCommercial Common Deed 1.0Attribution-NoDerivs-NonCommercial Common Deed 1.0 Example: Masers and Lasers Laser or Maser: Device to create a coherent (single direction, single frequency) electromagnetic wave. Has high energy, is useful for lots of things, like reading and writing CD’s, eye surgery, carrying info in fiber-optics. Scientific Underpinning: Einstein 1916 paper. Pointed out that coherent photons would be emitted from an “excited” atom when bombarded with a single photon (amplification). First Implementation, the Maser (Charles Townes 1954). In the Microwave part of the spectrum (long wave lengths) Second Implementation, the Laser (Towns and Schawlow, idea published 1958, patent issued 1960).

© Suzanne Scotchmer 09/14/2004 Contents May Be Used Pursuant to Creative Commons Attribution-NoDerivs-NonCommercial Common Deed 1.0Attribution-NoDerivs-NonCommercial Common Deed 1.0 The 1960’s: Nobel prizes. New mediums for excited atoms (solid-state, gas, ruby, in the 1980’s semiconductors) 1960’s to 1980’s New uses surgery, printers, communications, spectroscopy Patent battles I: Townes’ maser patent assigned to Res. Corp. Townes’&Schawlow’s laser assigned to Bell Lab Research Corp sued Bell Lab (blocking patents) Patent battles II: Gordon Gould, laser contender, applied for laser patent 1957, awarded 1977, after a partial revocation of the Townes/Schawlow laser patent.

© Suzanne Scotchmer 09/14/2004 Contents May Be Used Pursuant to Creative Commons Attribution-NoDerivs-NonCommercial Common Deed 1.0Attribution-NoDerivs-NonCommercial Common Deed 1.0 Lessons of the Laser wars Cumulativeness: Science (Einstein) to Basic Research (Maser) to War Research (radar) to Applications (Laser plus uses) Who deserves credit? (Everyone here.) Who gets the profit? Townes made about $1m total. Gould patents eventually made about $17m per year. Better to be late, but not never. (BTW, CD’s) Einstein earned nothing. Did any of these inventors need “incentives?” Importance of reduction to practice: There was delay in filing; was a description enough? Working model?

© Suzanne Scotchmer 09/14/2004 Contents May Be Used Pursuant to Creative Commons Attribution-NoDerivs-NonCommercial Common Deed 1.0Attribution-NoDerivs-NonCommercial Common Deed 1.0 Indigenous Knowledge: Basmati Rice Basmati Rice: Developed over generations in Pakistan, India and elsewhere. Adapted by genetic methods to growing conditions in Texas (what about water!?) Challenges the export market of Pakistan. How should we think about this? Moral rights? Economic rights? Equity versus efficiency?

© Suzanne Scotchmer 09/14/2004 Contents May Be Used Pursuant to Creative Commons Attribution-NoDerivs-NonCommercial Common Deed 1.0Attribution-NoDerivs-NonCommercial Common Deed 1.0 Neem Tree, also India Medicinal and pesticide properties The oil is unstable, so traditional use involves culling the oil, and using immediately. Biotech firm found a way to stabilize the oil, re- exports it to India. How should we think about this?

© Suzanne Scotchmer 09/14/2004 Contents May Be Used Pursuant to Creative Commons Attribution-NoDerivs-NonCommercial Common Deed 1.0Attribution-NoDerivs-NonCommercial Common Deed 1.0 Light Bulbs Humphrey Davi 1801 patented electric incandescent light made with a current between strips of platinum. Not useful; filament burned too quickly. Remaining development: find the right filament, and keep it from burning (vacuum bulb). Eventual solution was carbon filaments, then tungsten 1860 Swan patent. Carbon filament in vacuum bulb. Still inefficient, but is the design still used Edison, carbonised cotton thread. Lasted longer. Then carbonized bamboo, then tungsten 1907 Infringement fight betw Swan and Edison ended in a joint company 1883.

© Suzanne Scotchmer 09/14/2004 Contents May Be Used Pursuant to Creative Commons Attribution-NoDerivs-NonCommercial Common Deed 1.0Attribution-NoDerivs-NonCommercial Common Deed 1.0 Pneumatic Tyres 1845 patent on air-filled leather tire. Didn’t work very well. Then solid vulcanized rubber. 1888, John Dunlop put the two ideas together: rubber inner tube

© Suzanne Scotchmer 09/14/2004 Contents May Be Used Pursuant to Creative Commons Attribution-NoDerivs-NonCommercial Common Deed 1.0Attribution-NoDerivs-NonCommercial Common Deed 1.0 Tool 1 (insert genes) Application Or Use (germplasm) Tool 2 (genetic trait) Tool 3 (expression gene) Research Tools and Inventions

© Suzanne Scotchmer 09/14/2004 Contents May Be Used Pursuant to Creative Commons Attribution-NoDerivs-NonCommercial Common Deed 1.0Attribution-NoDerivs-NonCommercial Common Deed 1.0 Aggregate Willingness to pay net of Licensor 1’s price Aggregate Willingness to Pay PMPM qq Complementary Goods sold by two monopolist tool owners. Each user (indexed by q) requires both tools to develop his product. The prices of the tools will end up being higher than the profit-maximizing price.

© Suzanne Scotchmer 09/14/2004 Contents May Be Used Pursuant to Creative Commons Attribution-NoDerivs-NonCommercial Common Deed 1.0Attribution-NoDerivs-NonCommercial Common Deed 1.0 Research Tool or Basic Research Laser Application 2 Laser Surgery Application 1 Reading/writing CDs Application 3 Spectroscopy Basic & Applied Research (1) Will infringement deter investment in applications? (2) Is the 2nd innovator better off without infringement? (3) If applications are not patentable, how does that affect investment? (4) What if value y is not observable?

© Suzanne Scotchmer 09/14/2004 Contents May Be Used Pursuant to Creative Commons Attribution-NoDerivs-NonCommercial Common Deed 1.0Attribution-NoDerivs-NonCommercial Common Deed 1.0

© Suzanne Scotchmer 09/14/2004 Contents May Be Used Pursuant to Creative Commons Attribution-NoDerivs-NonCommercial Common Deed 1.0Attribution-NoDerivs-NonCommercial Common Deed 1.0 Breadth on a quality ladder (computer chips) q1q1 q2q2 q3q3 q4q4 Benefit of each improvement: /r Cost of each improvement: c Profit earned by each improvement: Basic Problem: There is a large discrepancy between the profit and social value of each incremental improvement:

© Suzanne Scotchmer 09/14/2004 Contents May Be Used Pursuant to Creative Commons Attribution-NoDerivs-NonCommercial Common Deed 1.0Attribution-NoDerivs-NonCommercial Common Deed 1.0 Intellectual Property on a quality ladder. q1q1 q2q2 q3q3 q4q4 q5q5 2 2 Benefit of each improvement: /r Cost of each improvement: c Flow of profit earned by each improvement: Two Tools of IP: patentable step and breadth (infringement) Solves the economic conflict (“enough” consolidation) Basic Problem: There is a large discrepancy between the profit and social value of each incremental improvement: